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LawTalk, Attorney
Category: Social Security
Satisfied Customers: 37414
Experience:  I have 30 years of legal and litigation experience, including representing clients before the U.S. Social Security Administration.
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I have been retired since July 2009 and started collecting

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I have been retired since July 2009 and started collecting social security at age 62. I have exercised stock options from my ex employer in 2012. I have been notified by Social Security that this exercise counts against my income limit for social security benefits in 2012 and as such they will decrease my benefits too offset this.
Is this correct? Other people I know that have done the same told me it didn't count against their income limit.
Thanks for your help

Good morning Eileen,

I'm Doug, and I'm very sorry to hear of your situation. My goal is to provide you with excellent service today.

Unfortunately, under federal law, the exercise of a non-qualified employee stock options, does count as income from employment, and Social Security benefits you receive before you reach full retirement age can be negatively affected if you earn too much from the exercising of the option. The difference between the exercise price you pay for the stock and the market price of the shares on the day of exercise is considered compensation and is reported to the IRS and Social Security on your W-2 form.

The Social Security Administration then counts this difference received as work income. When you have any income that is considered work income while you are receiving early retirement benefits from Social Security, the following applies: After your first calendar year in retirement, Social Security deducts $1.00 for each $2.00 you earn above a certain level---which in 2013 is $15,120.00. It was slightly less in 2012.

You made mention of other people that you know have done this and not had a problem, there could be several reasons for it. I can't comment specifically regarding the other people as I know nothing of their situation. However, possible reasons they were not negatively affected might be that they simply did not get caught, or the income derived from the exercise did not exceed the maximum yearly allowance for income before benefits would be affected. Or, possibly they were unaffected because they may have exercised stock options they bought on the market. Profits from those exercised stocks bought in the open market would constitute capital gains under the law, and are not considered compensation from working by Social Security.

I'm very sorry, but it appears that if the income from the stocks was greater than limit allowed, then Social Security will be allowed to recover the overpayment made to you through your normal monthly benefit payments.

I wish you the best in 2013.

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Thank you,



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